Indonesia Clamps Down on Minimarts

Jakarta. Around the corner of a large shopping mall in downtown Jakarta is a popular spot filled with young people sitting at outdoor tables, surfing the web on their gadgets or singing along to a band.

And slurping their Slurpees.

“It is a cool place to hang out because we can people-watch, snacks are affordable, and we can sometimes watch live soccer matches,” said college student Edhie Wira, 18.

But while 7-Eleven has become a popular hang-out since its first store in Jakarta opened three years ago, it is now being pursued by the Trade Ministry for failing to secure a permit to operate a convenience store.

Lawson, a minimarket owned by a Japanese company and an Indonesian partner, was also warned for incorrectly declaring its license under its name and not its Indonesian partner’s.

The two cases reflect the increasing scrutiny over the growth of minimarkets owned by large corporations, for fear they may hurt small local operators. Many Indonesians shop at 7-Eleven and other mini-markets instead of supermarkets or hypermarkets.

The Trade Ministry is pushing for a new law on franchises that will limit the number of outlets for any one franchise, beyond which they must be operated by local small investors. This has drawn cries of protectionist behavior from retailers.

The Indonesian Retailers Association (Aprindo) said the number of minimarkets in the country jumped to 16,720 last year, up 63 percent from 2008, on the back of a booming economy and expanding middle class.

A McKinsey report released last week predicted “a revolution in the (retail channels) sector to 2030, led by convenience stores,” fueled by an estimated 90 million Indonesians who could enter the country’s consuming class then.

By contrast, the number of supermarkets dipped to 1,229 across Indonesia, or shrank 17 percent, from 1,477 stores in 2008.

Many of these minimarkets operate without licenses. The Jakarta administration said that only 15 of the 57 7-Eleven outlets in the capital had proper licenses.

Starting next month, it said, violators will get written warnings and, at worst, be forced to shut down.

The Trade Ministry’s director of domestic trade Gunaryo said, “We want 7-Eleven to amend its operations to adhere to the license it got, (that is) the one for cafeteria. In reality, it sold not only fresh food and beverages… but more of convenience goods.”

Officials said the Japanese-owned 7-Eleven chain opened restaurants in Indonesia to skirt a rule that allows only local investors to operate mini-markets and small convenience stores.

Trade Minister Gita Wirjawan told reporters, “Retail stores (such as minimarkets) must be 100 percent owned by local investors, so (7-Eleven) probably obtained the permit for restaurants because it did not violate the negative investment list.”

Indeed, a 7-Eleven store in the Menteng district in central Jakarta reflects its unique restaurant-cum-convenience store model. It sells goods on the first floor while the second level is for dining. Chairs and tables are found outside the store, shaded by big umbrellas.

Others have copied this concept.

While Lawson’s Indonesian partner has quickly sent documents to amend its name, the local partner for 7-Eleven in Indonesia, Modern Internasional, said it had the right licenses.

“The retail business is very dynamic and evolves according to changes in consumers’ lifestyles,” he said. “The government should recognize this diversification.”

Observers said this clampdown and a revision to a franchise law that limits the number of company-owned outlets is anti-competition and protectionist.

Amir Karamoy of the Indonesia Franchising and Licensing Society said some of the eight foreign companies planning to set up franchises worth a total of 12 billion rupiah ($1.25 million) are waiting for the new rule before plunging into the market.

But Gunaryo said the number of franchises for mini-markets and restaurants has simply grown too quickly. “This has to be followed by a regulation that ensures business opportunities are given to the smaller and medium-scale businessmen, (for them) to own and manage them and also sell locally made products.”